Milwaukee convention center bonds advance amid coronavirus concerns
The Wisconsin Center District board signed off on a $420 million bond-financed convention center expansion over the objections of some members who questioned the timing amid plummeting tax revenues due to COVID-19-driven business losses.
The resolution approved by the board Thursday in a 12-4 vote with one abstention came after two hours of discussion. It allows the district’s finance team to craft the new money and restructuring bond sale. It also raises the county’s hotel tax, extends an existing food and beverage tax known as the “candy bar” tax, and allows the district to enter into a tax agreement with the city.
“The expansion of the Wisconsin Center will result in thousands of direct and indirect jobs, and over $100 million in direct labor wages during construction. We have both an opportunity and a responsibility to serve as the catalyst that will propel Milwaukee into recovery from the crisis we’re all currently enduring,” WCD president Marty Brooks said.
The bond sale, originally targeted for late April, is on hold. The finance team must return for a final OK by the board’s Governance Committee on the final new money bond structure and supporting documents including an updated analysis of tax projections.
The district may move more quickly on an up to $150 million debt refinancing to provide fiscal breathing room for the district, which has $376 million of debt.
It would ease a near-term cash flow crunch as the center is on track to exhaust revenues that go to cover debt repayment later this year. Near-term payments would be pushed off and the district would reimburse itself for $15 million.
With conventions on hold and tax revenues falling off, the district could be forced to dip into reserves to cover a debt service transfer scheduled for later this year. That, in turn, could trigger the state moral obligation to replenish the fund. The authorizing resolution allows the district to use a private placement if needed but officials hope to ready the restructuring so it can jump into the market quickly on a steady day.
Baird is financial advisor, Morgan Stanley is the lead banker, and Quarles & Brady is counsel.
State capital finance director David Erdman also is working on the deal. The legislation paving the way for the expansion allows the district to use the state’s moral obligation pledge as a backup pledge on up to $300 million.
A large portion of the new money would sell with junior-lien status and the state moral obligation. The remainder of new money would sell under a senior lien.
Several hurdles remain before the district can sell the bonds or break ground, starting with an unsettled municipal primary market struggling to digest the repercussions of COVID-19.
The district faces the added burden of selling investors on bonds backed by economically sensitive tax streams although the state’s moral obligation will help, market participants said.
The district currently collects taxes on hotel rooms in Milwaukee County, food and beverage tax in the county, a car rental tax in the county, an additional room tax charge in the city. They generate about $36.9 million annually.
The district also must also overcome Milwaukee Common Council opposition. The state legislation requires the city council’s approval to use the moral obligation which could shave as much as $50 million off interest costs. The council rescinded its approval in March after approving it earlier this year.
Brooks hopes to resolve the conflict through a roughly $41.5 million payment in lieu of taxes, or PILOT, agreement. It gives the city $1 million annually beginning in 2025 based on the district’s first $30 million of net income with another $1 million forwarded for each additional $10 million of net income above $30 million in any fiscal year.
Additionally, the WCD will make fixed payments of $250,000 in May 2022, $500,000 in May 2023 and $750,000 in May 2024. It’s not yet known if the council will agree to those levels or make a counteroffer. In that case, Brooks would have to return to the board.
Board members quizzed the district staff on current projections, which have dimmed dramatically from just a few weeks ago.
The district has seen more than 60 events canceled or postponed. It now expects net income for the year of just $50,000, down from $21 million, according to district Chief Financial Officer Steve Marsh.
The agency has enacted a hiring freeze and cut salaries. It’s looking at establishing a line of credit for liquidity and exploring what state and federal funds might be available to manage.
Several board members argued that the dramatic falloff of tax revenue argues against moving forward amid the uncertainties over the length and depth of revenue losses.
“I’m not comfortable giving an OK” and not having a board vote on the final new money borrowing, said board member Rep. Joe Sanfelippo, R-New Berlin. "I just don't know how we can put ourselves on the hook for additional debt payments when we don't know if we can" pay for existing debt.
Staff countered that the new money borrowing would go forward only with an independent analysis showing that revenues could support the new debt.
The 17-member board is appointed by the governor, Milwaukee County executive, Milwaukee mayor and Milwaukee Common Council president. Its members include local elected officials, legislative representatives, and members of the business community.
The expansion calls for a doubling the square footage of the convention center and provide a facelift for the existing downtown space. The district estimates it would generate $12.6 billion in spending over 30 years and allow the city to remain competitive with venues in other major cities.
The 2020 Democratic National Convention is still scheduled but it was announced Thursday that the date was being pushed back to August from July.
The district’s facilities include the convention center, now known as the Wisconsin Center, the University of Wisconsin-Milwaukee Panther Arena, Miller High Life Theatre, and the Fiserv Forum.